Older Is The New Better
GRAND RAPIDS — When Ashley Capital bought the Steelcase property in February, the real estate firm initially planned to demolish six of the 18 buildings on the 206-acre campus.
But recently, Vice President of Leasing Kevin Hegg told the Business Journal that his firm may raze only three of those industrial facilities because inquiries have been made on the other three.
“There still are definitive plans to take down three in the fairly near future. Some of our plans regarding the other three that were planned for demolition, we’re still analyzing that based on some market interest we’ve received on some of those buildings,” said Hegg, who represents the New York-based real estate developer from his office in suburban Detroit.
Of course, saving three buildings from the wrecking ball would be good news for Ashley Capital. Not taking them down would lower its cost to redevelop the property on the city’s southeast side between 44th Street and Eastern Avenue. It would also give the firm a shot at more revenue with a larger inventory to sell or lease on the site, which is now called the Grand Rapids Commerce Center.
Bata Plastics is Ashley Capital’s first tenant there. The plastics recycler has an option to buy a 120,000-square-foot building and 10 acres of property. For now, Bata is leasing the structure that once was a Steelcase carton storage facility.
Duke Suwyn, CEO of Grubb & Ellis|Paramount Commerce, the firm brokering the site for Ashley Capital, commented on the quality of the facility and its infrastructure, as well as the good location.
“You’re in an area of industrial buildings that are being completely redeveloped. As a vision of a resurgence of an industrial area, this is certainly fitting the bill.
“It’s a lot cheaper than trying to build brand new, too,” he added.
But the Commerce Center isn’t the only site drawing interest. Other older industrial buildings such as the former Lear plant on Alpine Avenue in Walker also are getting noticed. Blue Bridge Ventures CEO Jack Buchanan and his father, local attorney John C. Buchanan, are turning the massive 750,000-square-foot auto parts facility into Avastar Park, and, for all practical purposes, the Buchanans have come close to filling the space in a relatively short amount of time.
The younger Buchanan said there are two reasons why the building and others like it are attracting manufacturers. First, older buildings that are being redeveloped qualify for tax incentives from the state and local governments, while new buildings don’t. Executives of industrial firms see the incentives as a way to help reduce costs and level the global playing field.
“The second thing is, a lot of these buildings were built on far superior standards than are used today. With the Lear building we had an architect make a comment to us that this is five times the construction that anyone would justify putting into a building today,” said Buchanan.
“The drawback to these buildings is they look out-of-date. But if you can update them and make them look new, you’re dealing with a really solid structure that is far superior than most of the stuff that is out there,” he added.
Buchanan said other buyers are scouting the market for buildings like his and the ones that Franklin Partners has purchased. The Chicago-based real estate investment firm has bought six older properties in the region, four in the metro area. Franklin Partners most recent purchase came last year when the firm bought the office building, manufacturing plant and 27 acres that once belonged to Dematic Corp.
Donald Shoemaker, a partner with Martin McCormick in Franklin Partners, said his firm was drawn to the market because it had older buildings of higher quality with distinctive characteristics that can’t be found in the newer cookie-cutter warehouse-like structures that dot the region.
“Our users aren’t typically the warehouser that doesn’t care what the power is, or doesn’t care what the floor thickness is, or the clearing height, or the construction qualities. We’re looking for someone who wants to utilize those things. We typically end up with people that don’t want to be in a Grooters-developed building, but need a manufacturing building,” he said.
One factor as to whether Franklin Partners buys a building is who built it. If it’s the original user, Shoemaker said that’s a plus for his company.
“When Steelcase builds a building for itself, or when Smith Industries builds for itself, or when Siemens renovated its building four years ago, they just spend more money and do a better quality job than any spec developer does. It’s just kind of the nature of the product.”
The product Shoemaker referred to includes the infrastructure, such as all the power a heavy user needs, or the load capability in the Steelcase Broadmoor plant that Franklin bought, or the tall ceilings that helped entice Buchanan to buy the Lear plant. It’s those kinds of things that can make older buildings better than new.
“A manufacturer can walk in there, put the equipment in place and begin producing. I think your theory is very true if a manufacturer can utilize those things. For the average warehouser in the market, it really doesn’t make much difference,” said Shoemaker.
In addition to tax incentives and quality construction, location also plays a primary role in whether an older industrial building is revived. Suburban structures are drawing product makers, while buildings in the core city aren’t. Blue Bridge Ventures owns a few of those in the Monroe North Business District; a near-downtown area that at one time was completely industrial. But Buchanan said manufacturers aren’t interested in those structures anymore.
“The properties we own down there will never be industrial again. They’re not in areas that are good for getting in and out, and loading and unloading. We will never be able to use the Imperial (Metals) building as industrial again. But buildings like Lear or any good quality building that has a decent amount of dirt, decent parking and loading and all that stuff does well,” said Buchanan.
Buchanan said Monroe North has a chance to be the city’s best urban neighborhood someday, and his industrial holdings there could take on residential and retail uses that would support the medical expansion going on downtown.
“But there is infrastructure like parking that needs to go in there to make that viable,” he said.
“We’ve talked to the city recently about putting some parking in the middle of the neighborhood to help everybody. I’m hoping they will consider that, and then that would allow us to do something with our properties.”
So don’t expect the industrial revolution to take the stage again in the central city’s older industrial buildings. But at the same time, the curtain hasn’t come down on the tendency for developers to revive 40-something-year-old, well-built suburban factories and warehouses. At least not yet it hasn’t. And the curtain won’t fall until it costs more to rehab than build new.
“I don’t know if I would characterize it as a trend, but I think you’re right. I think, one, older buildings are built solidly and that can be a plus or minus. But the other issue is the cost of construction has grown 20, 30 percent over the last couple of years, and construction materials have really gone through the roof,” said Hegg.
“So building new buildings becomes cost prohibitive, in some cases. Or where it would have been a close call by a prospective user in the past, now renovating an older building is much more attractive because of a lower cost of getting into it,” he added.
“There are some good buildings out there that still have a useful life.”