The Gallery On Fulton Gathering Support
GRAND RAPIDS — Sam Cummings, president of Second Story Properties, learned last week that the project he is trying to do with RSC Associates of Chicago, The Gallery on Fulton, has backing among city agencies — especially with Parking Services and the Downtown Development Authority.
“It’s been a struggle to bring this project forward. We’re at a critical time,” said DDA Executive Director Jay Fowler
DDA members agreed last week to help Two West Fulton, the firm Second Story and RSC Associates created for the project, with its short-term cash flow problem in two ways.
First, the DDA is leaning toward buying a portion of the project’s site at the southwest corner of Fulton Street and Division Avenue. The purchase price of the city-owned, 37,000-square-foot parcel is $2 million, and the DDA is considering buying about half the square footage for $854,400 with the intention of selling the land back to Two West once the project is completed. Parking Services owns the highly visible site.
The proposed deal from the DDA calls for Two West to make interest-only payments on the property for the first five years and begin making principle payments in year six until the outstanding balance is paid in full. The loan’s term will be for 17 years and the interest rate will be 4.5 percent. Total interest on the loan will be $406,647 and Two West will have an outstanding balance of principle and interest totaling $1.26 million.
“This will assist in achieving a successful cash flow for the project. There are a lot of details that need to be worked out,” said Fowler of the property purchase.
DDA member Michelle VanDyke, though, wondered what collateral the board would get for its financial involvement in the project.
“It looks like we’re securing this with our own money. It doesn’t make sense to me,” said VanDyke, president of Fifth Third Bank.
John Canepa, a retired banker and a board member, said it would be helpful if the panel knew how the project will be financed.
RSC Associates CEO Richard Curto said The Gallery would be financed with $3 million in cash, a construction loan that needs to be finalized, and brownfield and New Market tax credits. Curto said the partners would personally guarantee the loan. But he added they can’t get financing until the development agreement with the city is in place.
“I need more information. I need to see the terms of the payment and how we’re going to be repaid,” said VanDyke.
Secondly, DDA members are also leaning toward granting Two West a reimbursement of $724,000 for selected activities such as making the building compliant with the Americans with Disabilities Act and for making street upgrades. The reimbursement would come from a portion of the tax-increment revenue the project will generate, which has been estimated at $120,000 a year.
“This is obviously a very complex project in its financing,” said Mayor George Heartwell, also a board member.
Fowler said the DDA will review and vote on the assistance package that totals $1.57 million next month.
On another front, Parking Services will buy an additional 179 public spaces in the project. Instead of the 83 spaces it was going to purchase in the original project, the department will now buy 262 at a cost of $9.4 million or about $36,000 per space. Spaces in the new city-owned ramp at Commerce Avenue and Cherry Street cost about $29,000 each.
Parking Services Director Pam Ritsema said her department will make a cash payment of $2.4 million and finance $7 million for 30 years at 5 percent. At those numbers, Ritsema said Parking Services would have an annual debt service of $460,500 and that it would take four years for those spaces to begin to turn a yearly profit. Her numbers show the spaces would accumulate a surplus of $4.66 million by the time the bond is retired in 2039.
“I anticipate that 60 to 100 (spaces) will be leased by the tenants,” said Ritsema. “I think there is sufficient demand for those spaces.”
City commissioners set Feb. 5 as the public hearing date to amend the brownfield that was awarded to Two West in 2005. Then it was a $20 million development that consisted of 26,000 square feet of retail, 74 condominiums and 194 parking spaces. Now the project’s cost has reached $32 million and features 35,000 square feet of retail, the city-owned parking spaces, and 66 apartments. Cummings said the apartments will rent for $1.60 per square foot and measure from 700 square feet to 1,150 square feet.
“It’s much more viable,” said Cummings as to what the apartments mean for the project. “We have to create a viable project for a bank to lend to us.”
The Brownfield Redevelopment Authority okayed the amendment. Because the project is within the DDA boundary, the BRA can’t collect the tax-increment revenue from it. But the board’s action raised the credit amount from the state business tax Two West is seeking to $3.3 million. The state already approved a $1 million credit for Two West and the firm is asking for an additional tax credit of $2.3 million, a change city commissioners and the state have to ratify.
“It may be necessary to divide the property into two development parcels to accommodate multiple credit requests,” said Kara Wood, economic development director for the city.
First Ward City Commissioner James Jendrasiak wondered how Two West can qualify for tax credits when the city is paying for all the project’s parking spaces and the main tenant is a nonprofit organization that is exempt from property taxes.
Commissioners will also have to extend the agreement Two West has for its purchase of the property and they are likely to do that on Jan. 29. The current one calls for Two West to close on the deal on Jan. 31, but the drop-dead date will be pushed back to March 31. Two West has already paid the city $25,000 for two extensions of the closing date. The Parking Commission approved the extension last week.
City commissioners will also have the new development agreement before them on Jan. 29. That contract will require that the project’s final plan be done within six months of the closing deadline and for construction get started within six months of the plan’s submission. Work on The Gallery would have to be completed within two years of the start date or Two West would face a penalty of $175,000.
The Urban Institute for Contemporary Arts is expected to anchor the project and buy about 32,000 square feet of the building’s total retail space for its new home. UICA will offer two theaters for movies and performances there, a large catering kitchen, high-tech meeting rooms, lecture halls, artists’ studios, gallery spaces, a gift shop, and a rooftop garden.
UICA Executive Director Jeffrey Meeuswen said moving to The Gallery will reduce the agency’s annual operating cost by $145,000, increase its annual earned income by $280,000, and eliminate a $1 million mortgage it has on the current site at 41 Sheldon Ave. SE.
UICA is in the midst of a $6.5 million capital campaign, an effort that has raised about $3 million so far. UICA expects to receive $2.5 million from the sale of its current home. When that amount is added to the campaign goal, it gives the agency $9 million to spend on its new facility.
“We’ve hit all of our targets so far. We are at 44 percent of the goal,” said Meeuswen.
UICA is selling naming rights to the rooms and theaters as part of the campaign. Those range in price from $25,000 to $500,000. The new four-story home is expected to cost UICA $6.9 million, a price tag that includes furniture, fixtures and equipment.
Wood said the project would create at least 32 new fulltime jobs averaging $19.23 per hour, which should result in $12,800 of new income-tax revenue annually for the city.
Cummings said work on the project would get started in the spring or early summer and would take about 18 months to complete. Two West outbid four other development firms in May 2005 for the right to buy the property from the city, which once was home to the City Centre parking ramp.
“We have invested a lot of hard money into the project and we have shrunken our margin,” said Cummings. “We are knocking on the door now, which is quite an accomplishment.”