Financially risky but seemingly worthwhile
Despite being a fairly complex deal that carries a few acknowledged financial risks, members of the Downtown Development Authority agreed last week to a new memorandum of understanding for the Urban Market they want to develop with the Grand Action Committee on the district’s southwest fringe. This latest agreement amends the one ratified by the board in January.
“We’re very positive this will be a great development,” said DDA Executive Director Jay Fowler, who added the process the board is following for the market is similar to the one the DDA enacted in the mid-1990s when it began the Van Andel Arena project. “It will extend downtown by another three blocks.”
Rather than sell the 3.5 acres on Ionia Avenue SW between Wealthy and Logan streets, which the DDA bought for $2 million in 2008, the board decided to lease the site to Urban Market Holdings LLC for 99 years for $1. The holding company will be a creation of Grand Rapids Urban Market Inc., a private entity that will consist of a 12-member board that will oversee the project and will hire an operator to run the open-air market. The market is expected to bring more than 100 new jobs to the district and offer some entrepreneurial opportunities.
The cost to develop the site could reach $30 million, which includes about $4.7 million in public improvements to the streets surrounding the site. Part of the improvements cost will come from a 20-year, $2.3 million bond the Grand Rapids Brownfield Redevelopment Authority will issue and that the DDA and UMH LLC will pay. The DDA will be annually responsible for $75,000 of the bond, which will only pay interest for the first two years, and UMH LLC will pay $150,000 toward the bond’s cost when the market becomes operational. A pending $389,000 transportation grant for the project would reduce the cost to finance the development, if it is awarded to the project.
Grand Action, a collection of private individuals who also helped develop the arena and DeVos Place and who plan to raise funds for the market, will not be a part of the project once the LLC takes possession of the property.
“GRUM will hold the LLC,” said John Byl, an attorney with Warner Norcross and Judd LLP whose specialty is finding public funding for projects.
“The holding company then transfers the authority to GRUM. The board of GRUM will presumably hire an operator,” said DDA Chairwoman Kayem Dunn.
Fowler said the property will be taxable and the brownfield tax-increment financing that will come from improving the site will be used to pay for the planned improvements to it, and to reimburse UHM LLC for the eligible work it does to the property. Nearly $3.3 million is the amount estimated to come from the brownfield TIF over 30 years. The holding company, though, won’t be reimbursed until the annual bond payment is made, the DDA is repaid for its advances, and the administrative costs of the GRBRA have been paid.
But Fowler pointed out that one risk the board must consider is what the actual taxable value of the market’s property will be, a figure that will ultimately determine how much tax-increment financing it will yield. “Some portion of the property could be tax exempt,” he said.
Another potential risk is that because the GRBRA bonds will carry the full faith and credit of the city of Grand Rapids, if something goes wrong, the city’s double-A credit rating could be downgraded. But Mayor George Heartwell, also a DDA board member, said the city is more concerned with creating jobs than it is with its rating, and is willing to take that risk. DDA Treasurer Jana Wallace, who is part of the city’s fiscal team, added that the city is well below the amount of debt it can legally carry, and the $2.3 million issuance wouldn’t affect the limit.
DDA Counsel Dick Wendt told the board that it will have to set aside a yet-to-be-determined amount to cover any shortfall in making the bond payments, which won’t be known until the bonds are sold. “The brownfield authority approved the bonds,” he said.
In a vote related to the market, the DDA agreed last week to hire Fishbeck, Thompson, Carr & Huber Inc. to design the reconstruction of Ionia, Logan and McConnell, the streets around the property that have been designated for improvements. The work can’t cost more than $175,000; the DDA’s share is $65,000. The board also awarded the project $100,000 for pre-design work earlier this year.
Fowler said the board was taking a financial risk by committing to the project’s design phase. Heartwell said he felt much the same way because the private funds for the project haven’t been raised yet.
“We have essentially identified, by our votes today, the market as a top priority,” said Brian Harris, DDA vice chairman.
“Things can happen that nobody ever expected,” added County Commissioner Jim Talen, a DDA member, who recalled how everyone thought revenue from the lodging excise tax would pay for the DeVos Place construction bonds, but hasn’t. “This is a little bit risky, but it seems to be worthwhile.”