Flat Iron to be the last GR renovation
Locus Development has begun preliminary work on its historic renovation of the Flat Iron Building, which also includes the former Groskopfs and Herkner structures. The downtown buildings are centrally located on the north side of Monroe Center at Ottawa Avenue.
The firm’s partners and founders, John Green and Andy Winkel, were awarded state historic tax credits for the $4.5 million rehabilitation project. Locus Development is turning the buildings, which range from 130 to 160 years old, into modern office space. Green told the Business Journal two months ago that most of that space is already leased.
But if the Republican-led Legislature agrees with Gov. Rick Snyder that historic tax credits should be eliminated as part of curing Michigan’s budgetary woes, then the redevelopment of older downtown structures may come to a screeching halt. Dozens of vacant buildings have been brought back to life over the past decade partially because of those credits.
“I think the loss of both the brownfield and historic tax credit would have a chilling effect on downtown development. These incentives are a key part of putting together development projects, which are very complicated in urban locations. Not because of bureaucracy but because of the complications of these developments, it takes a lot of time and effort to put it all together,” said Jay Fowler, executive director of the Downtown Development Authority.
“I think without these incentives, most every project that we’ve seen in recent years would not have happened,” Fowler added. “So if we look at that on a going-forward basis, I think it will have a chilling effect on downtown development.”
According to the Michigan Historic Preservation Network, a nonprofit organization based in Lansing, 87 homes and commercial buildings have used the credits and been historically restored in Grand Rapids since 1999. Through last year, those projects reportedly created 6,644 jobs and were worth $267.5 million in investments. Just two of those in the downtown district include the old Milner Hotel and the city’s former water filtration plant.
Should the historic credits become a thing of the past, Fowler said the DDA would continue to offer developers the incentives the board has made available for years. Those include the popular Building Reuse Grant that helps pay for such things as improving a façade, installing a fire-suppression system and making a structure accessible to everyone. In fact, the DDA awarded two such grants last week — the largest being $50,000 that went to the proposed redevelopment of the Iowa Flats Building at 125 Jefferson Ave. SE.
But those DDA grants won’t come close to covering the incentives the state put in place. “We cannot, either legally or financially, make up for the loss of the state credits that have been available,” said Fowler.
Nan Taylor, a field representative for MHPN and the National Trust for Historic Preservation, told the Business Journal that losing the credit will create a financing gap in projects.
“In Grand Rapids, the loss of these credits will affect rehabilitation efforts of the commercial property owners and developers who are willing to invest in commercial buildings,” she said.
“Not only have tax credits played a significant rehabilitation role in Grand Rapids, but also in smaller nearby communities such as in Holland, with the Holland High School and E.E. Fell Jr. High School projects, and in Allegan with the Kendall Block project,” added Taylor. “The statewide benefits are significant.”
According to the MHPN, again, the historic credit has leveraged $1.46 billion in direct renovation activity and created 36,000 jobs across the state since its enactment in 1999. Every dollar of credit that has been issued has leveraged $10.56 in direct economic impact. The state credits also have drawn $251 million in federal historic credits.
“This is federal dollars coming back into Michigan’s economy,” said Taylor.
Jennifer Metz, past chairwoman of the city’s Historic Preservation Committee and current partner with Rebecca Smith-Hoffman in Past Perfect Inc., said the historic credits also have played a vital role in small projects such as The Winchester restaurant on Wealthy Street, and in neighborhood business districts.
“Lately, they have been a part of making virtually every development along the Wealthy Street corridor possible, which has been one of the brightest spots in the city since the economy tanked in 2008,” she said.
Metz, whose firm has assisted developers with applying for historic credits and has provided them with historical data on their buildings since 1997, pointed out the state credit has even helped save some structures from being razed. She mentioned the former Berkey and Gay Furniture Factory on Monroe Avenue NW. Today, it houses condominiums and office space known as The Boardwalk.
“This huge building was slated for demolition three times before the project was undertaken using historic preservation tax credits. Now there are tax-paying businesses and residents filling this huge complex, and the project helped revitalize the North Monroe area,” she said.
Metz also explained that, just like the brownfield redevelopment tax credits, the historic credits are handed out only after a rehabilitation project is finished. “This means that all of the economic activity that is leveraged by the credit is fully completed and paid for before the credit is issued by Treasury. That means the income tax for all the workers and the sales tax on materials are all paid to Treasury well in advance,” she said.
“One important thing that seems to be a misperception is that the credits are being used as a windfall for developers. We all know that this is not the case. (The credits are) used to fill gaps in financing that are not filled by other sources. The lending institutions do not lend a high-loan-to-value rate, so the gap needs to be filled with layers of grants, private equity, municipal loans and state incentives. The historic tax credit is a critical part of that mix. Talking with bankers reveals that they are only lending on commercial projects that have these additional sources in the formula,” added Metz.
Despite the threatened loss of brownfield and historic tax credits, Grand Rapids city commissioners set a public hearing date last week for a development firm that has requested a brownfield designation. Acme Investors LLC wants to redevelop three blocks in the Wealthy Street and Jefferson Avenue area at a cost of roughly $17 million. As part of its request, Acme Investors is asking for a Michigan Business Tax credit of $2 million, and the firm hopes to get its brownfield plan approved by next week.
“The credits are still being approved, and this one is slated for approval on March 22nd by the Michigan Economic Growth Authority, contingent on city commission approval,” said Kara Wood, city economic development director. “The Michigan Economic Development Corp. is still considering brownfield redevelopment projects, but with a more narrow set of criteria.”