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Success in the City

Support from commercial, retail and service providers is crucial. Care must be taken to ensure supply doesn’t outweigh demand. But many residents, city planners and developers agree that as of now, the downtown Grand Rapids housing boom clearly represents

By Mark Johnston
Photography by Michael Buck

It’s been 20 years since Charles and Stella Royce moved out of their large Colonial house on Grand Rapids’ northeast side and into the downtown Pearl Street condominium they still call home. Their address hasn’t changed. Downtown has.

“On a scale of one to 10?” Charles Royce mused. “Go to 11.”

How fitting, to frame downtown’s evolution numerically: For the buzz these days is all about numbers, in the context of the burgeoning housing market that is transforming what Stella Royce says was a “sleepy town” two decades ago into a vibrant, resurgent city.

Consider that only 10 years ago there were about 1,200 housing units and 2,000 residents in the downtown area, according to a 1995 Downtown Housing Task Force report. Since then, more than 1,300 apartments and condominiums have been added and an estimated 800 more are planned or under discussion, according to city planning department figures. And a 2004 city-commissioned study by New Jersey-based Zimmerman/Volk Associates conservatively projects that the housing market potential for downtown is an additional 355 dwellings a year for the next five years. (Downtown is roughly considered the area bordered by Sixth and Wealthy streets on the north and south, respectively, and Prospect and Seward avenues on the east and west, respectively).

Those numbers have generated headlines broaching too-much-too-soon concerns of housing “saturation,” countered by assurances from developers, Realtors and city planners that supply would not exist without healthy demand.

What lies ahead will likely coalesce somewhere between the divergent viewpoints. Until then, the only in-focus view of downtown housing development is taken from the known, rather than the projected: an analysis built on asking not what downtown housing development can do for Grand Rapids, but rather what has that development already done?

Something for Everyone
Jay Fowler, executive director of the Downtown Development Authority, said urban housing’s comeback has diversified the city in several ways.

“ Comparing downtown to what it was 20 years ago — essentially an office park — it is much more of an active neighborhood,” he said.

If “comeback” implies a return to what was, it’s tempting to apply a metaphorical “big-bang” theory to the current housing boom: Perhaps the downtown-living era that peaked in the post-World War II decade before exploding into suburban flight in the ensuing 40 years is simply recurring in Grand Rapids, as people gravitate back to the urban core.

“ In some ways, it does seem it has cycled itself through,” said Greg Metz, partner in Lott3Metz Architecture, which developed a dozen apartments in downtown’s Donovan Building. “Maybe downtown is the new thing again. It’s evolution, but it’s also returning to how it used to be as people rediscover downtown.”

Yet, they are not returning to what was for a couple of reasons. First, the demographic has changed. The Zimmerman/Volk study targets two distinct groups — empty nesters and 20-to-30-something “millennials” — as the primary downtown buyers and renters of the present and future, as opposed to the approaching-middle-age-with-a-young-family consumers of the past.

“ I’m single, I’ve never married, have no children and I’m active socially,” said Joseph Niewiek, a “sub-30” downtown condo owner. “People aren’t getting married at as young of an age anymore.”

Secondly, the single-family homes of yesteryear’s downtown-area neighborhoods have given way to other forms of housing. The Zimmerman/Volk study identifies no single-family detached units in its “appropriate residential mix” for potential downtown development (likely due to lack of available property), instead targeting loft apartments and/or condos for rent or purchase, as well as “row” housing (brownstones, for example) or townhouses.

That housing mix alone doesn’t necessarily preclude families from living downtown, but when combined with other family-friendly factors — for example, access to schools, desire for a yard or play area — the modern demographic lines are clearly drawn.

“ Downtown housing and its amenities are a lifestyle,” according to city planner Eric Pratt. “It creates an environment that appeals to a different consumer.”

That doesn’t rule out diversity. Lost in the glare of glamorous $1.2 million condominiums and penthouse living is the across-the-income-range makeup of existing downtown housing and residents. For example, 38 percent of the nearly 1,100 apartments developed in the past decade provide housing to people on limited incomes, including college students and people with disabilities.

“ Actually, the market for high-end units is very thin,” according to Fowler. “In order for downtown housing to be successful, there has to be that broader market. We’re not just building condos for lawyers who work in law offices. The market is for working-class people too.”

Included in that demographic are people who work service-industry jobs — in downtown restaurants and hotels, for example — typically with $25,000-or-less annual salaries that preempt purchase of a 1,200-square-foot luxury loft. Yet, many of these people lack the transportation they would need if they couldn’t live close to their places of employment.

“ The healthiest neighborhoods are diverse neighborhoods,” according to Dennis Sturtevant, chief executive officer for nonprofit Dwelling Place, which provides housing to low- to low-moderate income earners. “And I mean diversity in many different ways — land use, the makeup of folks who live downtown.”

Sturtevant concedes perception is a “huge issue” in pursuing projects committed to helping people in challenging circumstances, including the homeless.

“ But downtown Grand Rapids, for the most part, has been very accepting and affirming of the need to encourage diversity,” he said. “There is the recognition that displacement does not have to be a consequence of development.”

What’s more, “low income” is not synonymous with “indigence,” and affordable downtown housing can be a means as well as an end.

For example, Dwelling Place plans are progressing for the Division Avenue Martineau Project, which would create 23 live/work loft spaces for emerging artists and their families. Rents are expected to be under $600 per month for two- and three-bedroom, 850- to 1,700-square-foot apartments, which would feature large open areas, moveable glass walls and potential gallery space. The building plans also include commercial space, an attempt to combine affordable housing with economic development, according to Sturtevant.

The Martineau Project, which encompasses renovation of four vacant buildings, is emblematic of yet another aspect of downtown housing development: It has less to do with new construction (although there is some) than with what is called “adaptive re-use of existing structures,” which often mixes residential with commercial uses.

Consider this sampling: The 237-unit Boardwalk Apartments are housed in the former Berkey & Gay furniture factory; the 101 Ferguson Apartments are housed in what was formerly Ferguson Hospital; the 109 Globe Apartments are in a series of buildings constructed between 1903 and 1928; and the apartment-to-condo conversion underway at the Peck Building is taking place in a structure built in 1875.

Fowler estimates that 20 years ago downtown had 75 empty buildings. Now there are only about a dozen.

“ Almost all of them have been redeveloped as either residential or commercial developments,” he said. “And there is a great variety of housing. One type doesn’t meet the needs of everyone but there is something for almost everyone.”

Investment Returns
Developer Jon Rooks shares Fowler’s satisfaction with adaptive re-use.

“ City government is the downtown property manager and it has done a great job in the last five years,” said Rooks, as he sat in the upper-level solarium of his Monroe Terrace condominium.

Warm spring temperatures prompted Rooks to open one of the sliding glass doors in the solarium, inviting the breeze to rustle his papers and muss his hair. But he remains unflappable when it comes to the winds of change downtown.

“ I know downtown is better than it’s ever been and I only see it getting better,” he said. “It’s easy to see why people want to live here.”

It’s also easy to see from whence Rooks’ optimism stems. Through his Parkland Properties, Rooks has successfully developed 24 luxury condominiums in Monroe Terrace and 25 more in the Peoples Building. All of them sold within weeks of completion.

His company is developing 151 additional condos in Union Square, formerly home to Union High and West Middle schools, due to open in spring 2006.

Rooks likes rehabbing old buildings for a number of reasons. New construction is extremely expensive, driven by prevailing steel, fuel and other volatile costs. He enjoys the creative challenge of blending old and new. And he likes the fact that his clients like it too.

“ Buyers lean toward creative, adaptive re-use,” he said. “Our Grand Rapids buyers are smart. The young ones are smart, the empty nesters are smart, the entry-level buyers are smart. They research. They look at potential appreciation. And they take the time to learn about the tax rates.”

Union Square, Monroe Terrace and the Peoples Building are all in tax-free zones, established by city leaders as market-based incentives to spur downtown development and investment. The concept has certainly worked in terms of Rooks’ success, but he regards other indicators as truer tests of downtown living’s investment potential.

“ There has to be reward for your investment,” he said. “Whether it’s a house, a condo or an office building, if it’s a good investment, people can rationalize making it. Some of these condos have appreciated by $40,000 to $50,000 in less than a year. They have become a better investment here than in the suburbs.”

And that investment goes beyond homeowners. National City Bank’s Community Development Corp. has invested $18 million in downtown Grand Rapids projects.

“ I am very confident we do need additional housing by way of condominiums at various price points,” said Jefra Groendyk, National City division manager for investment/real estate in West and Southwest Michigan. “I don’t know what the right number is, but as projects become available, we’re going to get to a point where developers will determine that on their own.

“ Developers in this community are very smart — they’re not going to put up a project that they think will sit empty.”

The current market bears that out. The five condominium projects (of eight units or more) completed in the last 10 years averaged 93 percent occupancy as of this writing, with two — the Peoples Building and Monroe Terrace — at 100 percent.

Groendyk added that lenders’ confidence in developers is complemented by other checkpoints that could help preclude supply outweighing demand. When lenders underwrite projects, they usually factor in pre-sales as a good indicator of market demand, Groendyk said. A typical guideline on a mid-rise project would be 50 percent, meaning that if 100 units are planned, 50 of them would be pre-sold.

So it’s not a matter of, “If you build it, they will come,” but rather, “If you are building it, many of them have already come.”

“ There is always the opportunity for saturation and vacancy on the market,” Groendyk said. “But not all proposed projects will hit the market at the same time. Ideally, it would be too gradual of a process.”

Worth the Wait
Darcey Critchell, a single mortgage broker and former suburban homeowner who moved into a downtown condo last fall, said the changes are already evident.

“ Grand Rapids is growing,” she said. “It’s exciting to be down here. I never thought that as a city we would be where we are.”

But for all the talk of a “boom,” the operative word remains “gradual” when it comes to downtown development. Housing is only one component in the domino effect that must include concomitant commercial, entertainment, retail and support services growth (grocery and drug stores, for example).

“ Downtown dwellers have to be patient,” Rooks said. “Their expectations will be met eventually. There is already great entertainment downtown, which drives residential, which drives retail.”

Emblematic of that formula is Monroe Center, home of the 10-unit Front Row Condominium development scheduled on this month’s downtown residential tour. Jimmy John’s Gourmet Sandwich Shop recently opened on Monroe Center, the first location for independent franchisees Tom Kirkpatrick and Phil Maguran. The shop joins several other businesses that have located on the block between Ionia and Division streets, including a women’s clothing boutique, shoe store and others.

Maguran said he and Kirkpatrick did their homework before locating downtown, which Maguran termed the business center of West Michigan.

“ In the past three or four years, I’ve noticed a tremendous change in terms of what downtown is looking like,” Maguran said. “It’s an ideal situation for someone who wants to live and work there. And just from walking around, you can feel it in the air — the excitement of being downtown.”

Which truly does bring the downtown living discussion full circle.

Twenty years ago, Stella Royce said she and her husband thought it would be fun to move downtown so they could be “right in the center of things,” where they had easy access to their beloved Grand Rapids Symphony, a variety of restaurants and all the other cultural amenities they value.

Two decades later, the atmosphere is even more intoxicating.

“ The momentum is so enormous with the things that are happening downtown,” Charles Royce said. “Why would you want to go anywhere else?” GR

 

   
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