Downtown Market says it’s on ‘solid footing’
Despite twice requesting extensions on $3-million loan from state, market’s CEO and president claims it is ‘financially sustainable.’
Despite having twice requested extensions on its $3-million loan with the state of Michigan, Mimi Fritz of the Grand Rapids Downtown Market said the Grand Action and Downtown Development Authority-backed venture is financially sustainable and doing well.
Fritz has served as the market’s president and CEO since it opened over Labor Day weekend 2013.
She said in its initial years, the market has been focused on achieving financial stability for itself.
“In 2015, we embarked on a three-year strategic planning process, which was started in 2016, so we’ve almost completed the first year,” Fritz said. “2016 was all about getting the organization as a corporation and then our foundation established and financially sustainable and on the path to growth. We successfully completed that in every regard. It was a phenomenal year.”
The Downtown Market consists of two entities: a for-profit corporation, Grand Rapids Downtown Markets Holdings LLC, and its nonprofit arm, the Grand Rapids Downtown Market Education Foundation.
Fritz said the for-profit part of the business oversees several components of the Downtown Market, including the foundation, the greenhouse and education programs, event rental and special events, the landlord/tenant relationship and the incubator programs.
The market does not share financial details on its for-profit business, but according to its most recent 990 filings, the educational foundation achieved total revenue of $217,998 in 2014, with $38,006 of that obtained through contributions and grants and another $141,828 through program services.
Under program services, the market generated $87,775 from classes and programs and $53,615 came from incubator rental fees; the remaining $438 was from other sources.
As far as the for-profit market’s revenues and expenses, Fritz would only say both have been higher than initially expected.
A 2010 feasibility study, conducted on behalf of Grand Action, said by Year 3, the market would generate $2 million annually in rental income and fees, while operating expenses would be $1.5 million.
“We’ve surpassed both of those numbers,” Fritz said.
Fritz said some of the contributing factors that have led to the increase in revenues are a stronger-than-anticipated event rental business, and the Downtown Market was able to secure a liquor license, which she said previously hadn’t been factored into projections.
“We are functioning differently than what the original feasibility study said, and I think at a higher level and much quicker than what was anticipated,” she said.
But, those unanticipated changes also have contributed to additional expenses for the market.
“We have increased revenue but also increased expenses because of more staff,” Fritz said.
She noted more staff equates to more payroll taxes and benefit costs, for instance.
The Downtown Market employs 43 individuals, Fritz said.
One of the biggest early challenges the market faced was landing its two restaurant tenants, which took longer than anticipated, but Fritz said it was worth the wait.
“We had to get the right businesses here, and that was at the top of our mind and the focus of the board and the staff,” she said.
With Slows Bar BQ and Social Kitchen up and running, the market nearly is full in terms of vendors.
“We still have a couple of open spaces with lease negotiations going on and others are reserved for pop-up vendors, a new program we started in 2016. It allows people to come in on a daily basis at the beginning stages of a business and test the waters,” Fritz said.
Fritz said many of the market’s vendors are doing really well, and Year 2 of the market’s strategic plan will focus on helping its vendors succeed.
According to tallies provided by the Downtown Market, retail sales in the market hall totaled just under $8.1 million in 2014 and just over $8.2 million in 2015.
The Downtown Market said it should be noted in 2015, there was some down time between tenants moving to new spaces and reopening, including “significant changeover time” between butcher shops, as well as a few open spaces in the market hall.
The original feasibility study suggested food sales at the market would reach $20 million annually at some point.
“For 2017, what we are excited about is to move into a focus on our tenants,” Fritz said.
She said that means providing them with more resources, such as educational and community programs.
She reiterated that to succeed in the market, vendors must have multiple revenue streams.
“They can’t rely on foot traffic. We tell every tenant that,” Fritz said. “They have to have other revenue streams, and that is the model for success in the greater economy and helps you to grow your business. We’ve always been very transparent about that. You have slow days and times of the year, and to rely on one revenue stream is not recommended.”
Other revenue streams include wholesale operations, catering services and offering programs and events to customers.
Fritz also is realistic about turnover at the market.
“The market was designed as an incubator space for new or local businesses,” she said. “It was always designed that there would be turnover. Businesses will grow and expand beyond us, and there will be businesses that will move or close doors for whatever reason.
She said the Downtown Market model allows for this kind of turnover.
“We don’t require someone to invest in a bricks and mortar location. It allows them to test it out and try it.”
She added, “That was Grand Action’s vision from the beginning, that economic development. This is a place for food businesses to start up.”
She said potentially, a business can start as a tenant in the incubator kitchen, test the waters through the pop-up vendor program and, if that is successful, sign a lease as a permanent vendor and, eventually, move on if it outgrows the market model, making space for someone else.
Fritz said while some concern has been expressed over the Downtown Market’s decision to extend its interest only payments on the $3-million Michigan Community Revitalization loan with the state, she doesn’t think it’s something to worry about.
“We are paying our interest on our loan,” she said, reiterating, “We are financially sustainable and operating successfully.”
John Green, Downtown Market board chair, said the Downtown Market originally was offered an eight-year, interest-only loan but had decided to move forward with a two-year, interest-only loan instead.
“This is unrelated to vendors and operating financials and is only for the construction costs of the building. It is not abnormal for businesses to have loans and is no cause for concern,” Green said.
The $3-million loan originally was taken out in support of Downtown Market construction costs.
The Michigan Strategic Fund granted the loan request, which also included $1 million in collateral from the Grand Rapids Community Foundation, the Frey Foundation, and the Dick and Betsy DeVos Foundation, each pledging one-third of the $1 million.
The market first sought an extension on paying back the loan in 2015, after it failed to land new market tax credits it had anticipated. It asked for a second extension in 2016, “to allow three new tenants, including two new large restaurant users to catch up with local current market,” according to Michigan Strategic Fund documents.
The extension is meant to “allow adequate financial sustainability.”
Fritz and Green said they did not know if another extension would be requested this year.
DOWNTOWN MARKET FINANCIALS
Total Project Cost:
$15 million – Public Funds
$12 million – Private Funds
$3 million - Community Revitalization Loan from the Michigan Strategic Fund
More Funding Info:
$5.2 million - Brownfield Michigan Business Tax Credit
$3.5 million - Brownfield tax increment financing
$4.7 million - From the city of Grand Rapids in the form of public infrastructure improvements
$400,000 - From the Grand Rapids City Parking Commission