Industrial Properties Still In The Zone

July 23, 2007
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GRAND RAPIDS — City commissioners recently amended the Renaissance Zone Extension Policy for properties that were included in the original 1997 zone.

Back then, many of those properties were industrial sites. But since then, quite a few have been converted into other uses.

Some of the vacant buildings that once served as factories and warehouses have been turned into office space, such as the Brass Works Building on North Monroe Avenue.

Some have been renovated into mixed-use developments that combined a commercial use with residential, such as Monroe Terrace, the former Ammerman Building that is also on North Monroe. Another North Monroe site that once housed Grand Rapids Foundry is now a new condominium building.

And it’s the residential use of these Ren Zone properties that last month led commissioners to alter the policy they had approved last fall.

“I think commissioners wanted to make sure that the projects that might come in were leaning towards job creation rather than residential development. These changes emphasize the fact that the Commission is looking for new jobs, which would lead to new city income taxes that would offset the loss of real and personal property tax, if the property was going to get an extension in the Ren Zone,” said Dan Oegema, interim director of the city’s Economic Development Department.

City and state income taxes are exempted for residents who live in the zone, but not for those who work in one. Extending the designation for a residential project wouldn’t bring any immediate or new tax revenue to the city. But granting an extension to a property that adds new jobs would.

So Deputy City Manager Eric DeLong, who chairs the city’s Economic Development Project Team, suggested to commissioners that residential use has to be part of a larger mixed-use development before a property can get a zone extension. In fact, a residential portion can’t be more than 40 percent of a project for it to be considered for more zone time.

This guideline came from the city’s rejection in December of a request to turn the former Sligh Furniture building into an apartment complex with retail on the ground floor. The Sligh, a mostly vacant industrial warehouse at Grandville Avenue and Logan Street, was admitted into the zone in 1997, but has seen little in the way of investment the last 10 years.

The other change commissioners made to the policy last month requires projects that are approved for an extension to “create significant new city income tax within three years” of the project’s completion. If the requirement isn’t met within that time — which means not enough new jobs have been created — a property owner could be penalized.

“We’ve had development agreements secured by a letter-of-credit or a bond, so I would think that if the jobs are not created, they will forfeit a part of their letter-of-credit or all of their letter-of-credit, or some type of penalty like that,” said Oegema.

A development agreement for an extension could resemble the one MBtech agreed to last year. The firm, a division of automaker Mercedes Benz, bought Autodie International and received a new seven-year zone designation for the plant at 44 Coldbrook St. NW. In return for getting access to the nearly tax-free zone, MBtech has to meet specific job creation numbers for 2008, 2009 and 2010. If the company falls short by the imposed deadlines, the firm has to pay the city and state the income taxes from the jobs.

Commissioners James Jendrasiak and Rick Tormala said each project that comes from property owners in the zone will be evaluated on its own merit, a process that differs from the founding of the zone 10 years ago when blocks of buildings in six areas of the city were drafted into the zone. Back then, property owners weren’t required to make improvements in order to gain the tax benefits, and the city feels too many haven’t.

“This has more oversight, while the first one didn’t,” said Jendrasiak of the new policy.

“So we’re practicing economic democracy,” added Tormala.

The first zone covers 536 acres and includes 780 parcels that stretch from the northwest side of the city near Alpine Avenue to the southeast along Wealthy, Eastern and Franklin streets. Industrial buildings still line many of those blocks, especially the ones north and west of the Grand River.

“The larger parcels, and probably where we looked for the major development potential, were in these larger, older industrial properties,” said Oegema. “A fair amount has been converted over from industrial to mixed-use types of facilities: commercial and residential.”

American Seating has turned some of its buildings into residential and office uses. Bob Israels, president of Israels Designs for Living, is currently renovating two old Widdicomb Furniture factories and a former American Seating plant into office space, retail and condos. Israels has already converted a Widdicomb building into a retail showroom. Both sites are just west of the river on the city’s northwest side.

But all the zone’s industrial buildings haven’t been transformed into new uses, and the parcels haven’t been rezoned. Oegema said properties on Ann Street near Alpine Avenue and along Godfrey Avenue are zoned industrial, as are scattered sites throughout the rest of the zone.

The city reported that more than $250 million was invested in the Ren Zone from 1997 through August 2006. That investment has led to 2,145 new jobs in the city. The full tax breaks for the 1997 zone expire in 2009. That year property owners will have to pay 25 percent of the previously exempted taxes; then 50 percent in 2010, and 75 percent in 2011. Without an extension, the zone’s tax benefits will end for them on Jan. 1, 2012.

The city is willing to forgo $500,000 a year in tax revenue to the zone. As of last August, the city had lost almost $317,000 a year in property tax and other revenue to the zone. So the Ren Zone has room for another $183,000 of tax exemptions right now. That cap, of course, will grow as the 1997 zone reaches its retirement years.

Property owners interested in filing for an extension have to meet a minimum of three criteria for their project to be considered. Every project submitted will be evaluated on at least a dozen factors, including the amount of income tax the new jobs will generate and the amount of investment that will be made in the property. An extension can go for up to 15 years.

If city commissioners approve an extension, an application is sent to Lansing. Board members of the Michigan Strategic Fund will review it and must OK the project for an extension to become official. With the state looking for tax revenue to fill a projected $1.5 billion deficit in next year’s general fund, getting a project past the MSF might be a difficult hurdle to clear.

Oegema said none of the zone’s property owners had filed for an extension.

Commissioner James White said the changes the commission made to the policy were done to assist economic development efforts and to create more jobs within the city.

Commissioner Roy Schmidt, who was in office when the zone opened 10 years ago, said the new policy is a good one. But he also was worried that it could pick winners and losers instead of giving each property owner the same chance, as the 1997 zone did.

“I hope the new amendments will help,” said Schmidt.

Extension Checklist

GRAND RAPIDS — Because the city wants to create more jobs and encourage more investment in commercial and industrial properties in the city’s first Renaissance Zone, commissioners created a policy that would extend the nearly tax-free status these parcels have enjoyed since 1997.

To be considered for an extension, property owners must submit a specific project for their sites. That information must include the amount of investment that will be made, the number of jobs the project will create, and a pro forma that shows the difference in the return on the investment with and without the zone’s tax savings.

Applicants must also meet the first two of the following criteria and two of the remaining four. A project:

**Will be a catalyst for a major development or for multiple redevelopment opportunities in the city.

**Will create significant new city income tax within three years of completion.

**Will be a property that has been vacant or 50 percent of the building(s) unoccupied for at least one year.

**Will reflect investment that will be significant on a square-foot basis.

**Is a contaminated site or functionally obsolete, as defined by current state law.

**Shows other evidence of underutilization or disinvestment.

A $5,000 application fee is required and property owners must agree to pay all legal fees that are necessary to create a development agreement with the city.

More information on the extension policy, including the evaluation factors, is available from the city’s Economic Development Office at 456-3431.

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