- change ups
Christman Capital gets financially creative
The Christman Capital Development Co. provides its clients with more than a dozen services that range from land acquisition and master planning to environmental and site analysis.
But of those services, perhaps the most important is finding financing for a client’s building project. Since commercial loans have become more difficult to obtain, that financing service has become even more vital.
The most recent local financing package the company put together is for the planned renovation of the former Federal Building at 148 Ionia Ave. NW in downtown Grand Rapids. The project’s estimated cost is $28.5 million, with about $20 million of that expected to go to the actual construction.
Christman Capital Development is using a number of public sources to pay for the work, and one of those sources stands out: American Recovery and Reinvestment Act bonds.
The city of Grand Rapids and Kent County have agreed to allocate up to $12.5 million of their respective allotments of Recovery Zone Facility Bonds, which will give the project $25 million as its financing base. The RZF bonds are tax-exempt securities that Congress designed for exclusive use by the private sector.
“I think it may be closer to $22 million in the bonds; that number has moved around a little bit. But, yes, we’re wrapping as much of the financing into that program as we can,” said Cash.
“The key feature is that the interest is tax exempt on those bonds. There have always been tax-exempt private activity bonds available in Michigan for industrial projects, called Industrial Development Revenue Bonds. This stimulus act made this type of financing available for a much broader range of private activity,” he added.
As far as the cost to a borrower is concerned, Cash said there isn’t much difference between taxable bonds and tax-exempt bonds.
“But in the case of the Federal Building, it was a very challenging project financially, and we needed every edge we could possibly find. This program provided us with a slightly lower cost for capital.”
Cash said the bonds will likely go to market in October, when Robert W. Baird & Co. plans to sell the securities. The company is also relying on state brownfield and historic tax credits to cover portions of the financing. The Downtown Development Authority also is expected to award tax-increment financing status to the project.
So, as far as the project’s funding goes, commercial lending is noticeably absent: Most of the financing originated in the public sector.
“There were numerous public partners. There was the city and the county and the state, which provided a variety of economic development incentives and tax credits. There was also the federal government, which assisted in the transfer of ownership of the building. The federal government does still control that,” said Cash.
Christman created the Christman Capital Investment Group LLC for the renovation work. It will lease the building from the city and then sublease it to Ferris State University. FSU and Kendall College of Art & Design will occupy the 91,000-square-foot building. The FSU trustees still have to approve the project; approval could come as soon as next month.
Work is expected to begin in the spring; the finished product will be LEED certified.
Christman Capital Development also put together the financing for much of the medical development on Michigan Street. It partnered with RDV Corp., a management investment firm headed by Richard DeVos, to build 740,000 square feet of new space for Spectrum Health, and for the Michigan State University College of Human Medicine.
The cost for all that work totaled roughly $250 million. Luckily, the project’s financing was in place prior to September 2008, when the financial market started the nosedive that brought on a tightening of commercial lending.
“Much of that work was designed and financed before the credit crunch hit. So the bulk of that project was done kind of in the ‘old world’ where financing was readily available. But we certainly did make use of a number of tools and techniques for public-private partnerships on that project, as well,” said Cash.
Christman Capital Development has been around since the late 1980s. Cash said the entity has grown substantially over those years and has become an essential component of The Christman Co.,: a Lansing-based construction services and management firm with a regional office in Grand Rapids.
“I think that we are seeing some loosening up in the credit market for projects, which is very welcome. But we do need to continue to be creative and work together to be able to put projects together from a financing perspective.”
“It’s too bad when there are projects that have merit that could go forward except for a lack of financing. I think it’s going to continue to be a key aspect of economic recovery here in Michigan and throughout the country for some time.”