What's next for downtown development

January 4, 2009
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The JW Marriott Hotel, the River House condominium building and the Grand Rapids Art Museum are completed. The Van Andel Institute expansion is nearly done. Work on the Michigan State University School of Human Medicine is well under way. And two projects, The Gallery on Fulton and Thirty-Eight, are getting started.

So what is next for downtown development?

The Business Journal wanted to know so we asked a handful of people to give us their thoughts — those brave souls who are or have been involved with projects in the district. Here is what they see happening in downtown for 2009.

Rockford Companies CEO John Wheeler sees a few new things popping up this year. He expects that some smaller housing projects aimed at college students may be offered near the west bank of the Grand River, that new retail could emerge from The Gallery on Fulton and Thirty-Eight, and that the Davenport University Fulton Street campus may be redeveloped.

Wheeler also felt the growing enrollments at Kendall College of Art and Design and the Thomas Cooley Law School could bring new retail and food service businesses to Division Avenue and the areas around it.

“I think the first leg of the Wealthy-Jefferson project, south of Wealthy, that we are working on with ICCF (Inner City Christian Federation) will launch next year with a mix of commercial and residential all around the Cathedral Square project,” said Wheeler, whose firm is also renovating 35 Oakes St. SW this year, likely the last building in the company’s Cherry Street Landing project.

“I think that the completion of the new Windquest building (at 201 Monroe Ave. NW) that we are doing next to DeVos Place will help complete that stretch of renovated buildings, and I am hopeful that a few more tenants will continue to fill in empty spots around the Central Business District,” he added.

Third Coast Development Partners Principal Dave Levitt believes the growth of public transportation, via the BRT system for Division Avenue and the Monroe Avenue streetcar, will be key for downtown development. He thinks the infrastructure stimulus package will help send some construction dollars to the district, and some more leasing activity could be coming from government offices.

“I think there is one larger project in the works for downtown or the VAI area. I am not being cagey as I am not sure where or what, but there is a low-level buzz going on. My sense is that it is a medical school or medical practice-related activity,” he said.

But Levitt is concerned about the current banking situation and the likelihood that bad news will hit the retail sector harder and sooner than expected this year, and both scenarios will have a negative effect on commercial real estate.

“As you know, the commercial market typically has shorter-term maturities on loans that need to get refinanced frequently. If things remain tight, I believe there will be fewer projects and a rise in defaults. So my overall prediction is for a lot of tumult over the next 12 months, but not a lot of cranes in the air,” he said.

“Given the difficulty in financing new projects, it will be late 2009 before anything big gets announced. I think this will be a year of smaller deals, but a number of them may go off this year.”

Like Levitt, CWD Real Estate Investments Principal Sam Cummings doesn’t see many major projects on this year’s agenda for downtown. He said cranes are only likely to be hovering this year over his Gallery on Fulton project at Division and Fulton, and over Locus Development’s Thirty-Eight at Commerce and Weston.

“I think that we will hope to recover from some of the tenant losses of 2008-09 and, late in the year, work to recover lost occupancy across the office sector. Many condo projects will either reach stability or struggle with momentum. The rental residential market will continue to be strong, but may be impacted by some condo projects that are forced into renting to offset carrying costs,” said Cummings of a trend that has already started.

“At least one new restaurant/bar will be proposed. We will probably lose one or two of the existing (ones). Talk of another Class A office tower may resurface late in the year.”

Blue Bridge Ventures CEO Jack Buchanan sees 2009 as one of the most challenging years for downtown development in decades, as income flows are declining and many banks aren’t lending. He also said developers need to look two or three years into the future, but right now they’re consumed by the current economic woes. But it’s not all doom and gloom for Buchanan.

“Recovery is inevitable; it’s a question of when, not if,” he said. “The city government and municipalities need to look at the big picture and position us to best meet user’s needs. I think we’ll see renewed optimism early in 2009 caused in part by the new administration taking office and by bailout funds making their way through the banks and into the real estate market.”

Buchanan feels developers will have to come up with new variations on the existing loft spaces that mark downtown, as there is too much vacant space in many of these restored buildings, and cure some of the space inefficiencies that are inherent in loft-office space. He said mixed-use projects should do well even in this economy, and he is part of a group that is creating one in the former Imperial Metals building at 801 Ionia Ave. NW in the Monroe North Business District, just north of downtown’s core.

“The project will offer primarily office space, but has the potential for a restaurant or entertainment venue as well. The new/old building has some unique attributes that will distinguish it from other office spaces, yet it features higher space efficiency than most other loft office properties, giving users a lot more space for their dollar,” said Buchanan.

“I believe that North Monroe holds the most promise for development within the city. Its close proximity to the growth around Spectrum Health and the Medical Mile as well as the CBD, and an aesthetically pleasing location on the banks of the Grand River make it full of potential,” he added.

Andy Winkel, a partner with John Green in Locus Development, sees the year as an exciting one for development downtown, particularly in Heartside. Besides the Gallery on Fulton and Thirty-Eight, two buildings in the district are being rehabbed. Brookstone Capital is redoing 101 S. Division, and Rockford Construction is reviving 35 Oakes SW.

Winkel said when he adds those projects to what has already been done in that sector of downtown, he sees a critical mass of mixed-use buildings with ample parking that gives people more reason to be downtown.

“Even before the completion of these new projects, I think we will start to see the catalytic impact that this concentrated investment has on others’ decisions to rehab underutilized buildings, build new mixed-use buildings, move their offices or homes downtown, and so on. The amount of investment in the Heartside area over the coming years by this ‘second wave’ of development will surprise all of us,” said Winkel.

“From a larger perspective, while we can’t predict exactly what new developments will occur in 2009, as each of these projects comes out of the ground (or is rehabbed), it will provide yet another reason for all of us to proudly say, ‘Grand Rapids is for real.’”

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