DDA revises its policy For project support

October 30, 2010
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Members of the Downtown Development Authority recently revised the board’s Development Support Policy, which they created nearly five years ago to promote economic growth and development in the district.

The revision was largely made as an effort to provide financial support to more of the building projects that normally occur downtown, and because the Michigan Economic Development Corp. wanted to have more local public investment going into projects that request state tax credits from Lansing.

DDA Executive Director Jay Fowler said the JW Marriott Hotel was the project that inspired the idea for the policy. In 2004, the board agreed to reimburse HP3 LLC, then a division of Alticor and the hotel’s developer, $2 million over several years for public improvements that would be made as part of the construction. A few years later, the DDA also paid for a renovation of the Campau Square Promenade, which runs from Monroe Avenue to the hotel on Campau Avenue.

The first project that received financial support under the policy, which board members established in January 2006, was the River House condominium tower built by Robert Grooters Development along the west bank of the Grand River on Bridge Street NW. When the DDA enacted the Development Support Policy, board members wanted to shore up new construction downtown and they required that a proposed development have a minimum private investment of $5 million to qualify.

Most of the projects proposed for downtown, though, are renovations of existing buildings, and can’t meet the minimum investment needed to be eligible for the program. So over the past few years, the board has waived the investment requirement for renovations, which have accounted for 11 of the 16 projects that have qualified. Rather than continue to offer waivers, the board dropped the minimum investment required to $1 million.

“Below ($1 million), the amount of tax-increment that is collected is relatively minor,” said Fowler.

The first approval for a renovation under the revised policy came just minutes after the board made the changes. Doug Gulker, a broker, developer and owner of Fusion Properties in Grand Rapids, is part of 100 Commerce Development Co. LLC. He said his company wants to turn the long-vacant, four-story building at 100 Commerce Ave. SW into 32 market-rate apartments and first-floor retail.

The firm plans to invest more than $2 million into the project, which Gulker explained would help fill downtown’s void in one-bedroom apartments. “There is definitely a need for one-bedrooms. We’ll have some two-bedrooms and efficiencies, too,” he said.

The development firm asked the DDA for a $50,000 Building Reuse Grant, a program the board designed for projects like the one Gulker’s group is undertaking. But the company also asked for $100,000 in financial assistance, a figure that represents the tax-increment revenue the work will generate via the site’s increased property value once the project is completed. Normally, that revenue request is filled through the state brownfield program. But unlike most other sectors of a city, state law says that, in a DDA district, those dollars go to the board to be used to further the sector’s development instead of to a project’s developer.

DDA members, however, agreed to reimburse the firm and will honor its request for $100,000 through the Development Support Policy. They also awarded the project the reuse grant. John Byl, an attorney with Warner Norcross & Judd, represented the developer and said the state will give the project a Michigan Business Tax credit of 20 percent, which can be taken over seven years.

“We are hoping to have all of our incentive by the end of the year,” said Gulker. “We hope to start construction in February.”

The last renovation to receive a waiver under the policy occurred in September when the DDA awarded $27,000 in TIF funds to 68 Commerce LLC. The developer is investing $1 million into the project that will result in a new nightspot for the vacant building. The board also gave the firm a $50,000 reuse grant for façade improvements and other qualified items like a fire-suppression system. The project also qualifies for MBT credits through the brownfield program.

The state told city officials earlier this year that they had to provide more local financial support to go along with the tax credits Lansing gives to developers here, and Fowler said city officials passed that message on to the DDA.

The board also made several other changes to the policy. One puts a two-year expiration date on a project that receives funding under the program. The board retains the right to extend a deadline if it sees fit to do so. Fowler said of the 16 projects that have qualified, four are inactive and may not be built but were still listed under the policy. “By having an expiration date, that allows us to say, ‘It’s a dead project,’” he said.

Another exempts the personal property tax from a project’s tax-increment revenue calculation. “For most of these projects, it would exclude the personal property tax,” said Fowler. But board members can request that the tax be included in the calculation under certain circumstances.

“I want to make sure that we don’t find ourselves in a negative position,” said DDA counsel Dick Wendt, who doesn’t want the board to reimburse more tax revenue to a developer than the DDA receives from a project.

A third change gives the board the right to begin capturing tax dollars on the date the first tax payment is due following the completion of a project. The revisions were approved at the board’s October meeting.

The DDA explicitly offers developers and building owners three support programs: the areaway removal program, the building reuse program and the Development Support Policy. The latter has the largest budget at $900,000 for this fiscal year. Overall, the DDA has budgeted more than $3 million across 13 development support categories for fiscal year 2011.

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