Downtown Market buys more time
State approves fourth loan extension while market sources $1M from foundations for 25-percent payment.
The grace period for Grand Rapids Downtown Market’s debt repayment has stretched into a sixth year.
The market at 235 Ionia Ave. SW — which opened in 2013 — on Jan. 23 received a “fourth and final” extension on the interest-only period of its $3-million Michigan Community Revitalization Program loan from the Michigan Strategic Fund (MSF) while it buys time to restructure its debt stemming from initial construction costs.
According to a Michigan Economic Development Corporation (MEDC) memo dated Jan. 23, the interest-only period on the loan will be extended from Jan. 31 to May 31.
The MEDC will present a debt restructuring proposal to the MSF board at its February or March meeting.
Downtown Market President and CEO Mimi Fritz declined to be interviewed for this story.
In a statement provided by Brian Burch of public relations firm Burch Partners, Fritz said the market is a “fully financially sustainable organization” and has seen consistent traffic, facility rental and occupancy rates.
“As reported in the MEDC recommendation, the short extension is to work out the final details of a repayment program of the market’s debt,” the statement said.
“This restructuring of the project development debt will serve to meet its obligation in a way that also supports the organization’s ability to maintain a strong retail ecosystem for its tenants, grow educational programming and continue to build a reserve for capital improvements.”
The Business Journal noted in a report last year that the Downtown Market consists of two entities: a for-profit corporation, Grand Rapids Downtown Market Holdings LLC, and its nonprofit arm, the Grand Rapids Downtown Market Education Foundation.
Fritz said, at the time, 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 disclose financial information for its for-profit side, but according to its form 990 for the year ending Dec. 31, 2016, the education foundation’s total revenue fell by more than 30 percent from 2015 to 2016, from $603,090 in 2015 to $417,500 in 2016.
Revenue less expenses in 2016 showed a loss of $47,900, compared to the prior year's surplus of $103,097.
At the beginning of 2016, the education foundation’s total assets were $45,987 and by year’s end were at $5,195.
Fritz’s statement said the market has “proven itself” to the community as a “magnet” for economic development and cites the addition of new retail, commercial and housing development in its neighborhood.
The MEDC memo indicated the market has hit some snags with its development partners. The project was initially backed by the Grand Action Committee — whose founders retired in September — and the Downtown Development Authority.
“The nature of the development partnership has changed, and the development team had also underestimated the level of operating expenses that would be incurred annually to operate a market of this nature,” the memo said.
“These changes have led the market’s team to believe that the market would need to restructure its debt in order to maintain the level of services the market currently offers.”
To make a 25-percent payment on the original $4-million loan (the full total of the loan facility from Fifth Third Bank along with MSF), the market worked with the MSF board “to motivate the three local loan guarantors, the project developer and two anonymous donors” to contribute $1 million no later than Jan. 31.
The Frey Foundation paid $333,000 as of Dec. 31. The Grand Action Foundation, Grand Rapids Community Foundation and two other unnamed foundations committed to grants of $250,000, $150,000 and $266,667, respectively, to meet the Jan. 31 deadline.
The Frey Foundation declined to comment, referring The Business Journal to the Downtown Market’s statement.
GRCF President Diana Sieger said her foundation was in the group that originally contributed $12 million in private funds, out of the project’s total cost of $30 million.
The rest was paid for with the Community Revitalization Program loan and other public funding.
“(Our) original grant was to the Grand Action Committee,” Sieger said. “It was $150,000 … in June 2010 for pre-development costs.”
In October 2011, GRCF awarded $500,000 “toward the capital needs of the market,” Sieger said.
In June 2014, GRCF gave another $250,000.
With its recent grant of $150,000, GRCF has contributed $1,050,000 to the market in the past eight years.
The totals of the other foundations’ contributions were not disclosed.
The MEDC also declined to be interviewed for this article and referred The Business Journal to the memo outlining the history of the loan agreement with the Downtown Market and its amendments.
The memo included a letter from Fritz to Julius Edwards, manager of underwriting and incentive structuring with the MEDC, dated Jan. 15, 2018.
Fritz wrote in the letter that, in addition to securing the commitments totaling $1 million from the foundations, the market also has trimmed operating expenses “in anticipation of MEDC principal and interest going into effect.”
The reductions include leaving staff positions vacant, deferring facility and grounds maintenance, eliminating monthly capital reserve contributions and “significantly” reducing the marketing budget.
Fritz said the market is “grateful” for the MSF’s decision to extend the interest-only period of the loan a fourth time.
“We look forward to working with (the MSF) to restructure our remaining debt so that the Downtown Market can continue its viability and its transformational impact on Grand Rapids,” she said.