Friday, October 17, 2008

Development-oriented transit encouraged

There are three megatrends that are compelling planners to take a closer look at transit today: the public consciousness has been awakened regarding emissions and pollution; the era of cheap and abundant oil is over; and a lot of Americans simply want to live the urban lifestyle, according to Charles Hales, commissioner of Planning and Transportation for the City of Portland.

Hales has an extensive background in integrating regional transit with the urban environment. He’s known as the godfather of Portland’s highly successful streetcar system, which has spurred millions in new development in the city’s downtown. He spoke with business leaders and transit advocates Thursday afternoon at the University of Michigan & Urban Lank Institute Real Estate Forum.

Public transit serves poor people who need it to get around and it serves some middle class people who use it to avoid the hassle of everyday commuting, Hales said. It’s also the choice of many of the young people who are flocking to the urban living environments, he added. But statistics from the American Association of Retired People show that 71 percent of older Americans, too, want to live within walking distance of a transit system, he pointed out.

“People are seeking better designed communities served by and organized around transit,” Hales said. “We’re seeing an American Renaissance in transit.”

Some cities are building light rail systems. Others are investing in bus rapid transit, which Hales describes as a “great tool” for connecting a community. A bus rapid transit system will open in Grand Rapids in the summer of 2012. The BRT line will run along Division from 60th Street north to Wealthy Street, through downtown to Michigan Street and then to Central Station. The corridor runs through Grand Rapids, Wyoming and Kentwood. All in all, the route will be just under 10 miles, with 19 station stops and 10-minute service frequency during peak hours. The route will have a dedicated traffic lane and will use hybrid electric busses that have “secondary signal preemption,” which means traffic lights will automatically adjust to longer green lights and shorter red lights.

Many business leaders believe the route will be a catalyst for new jobs and investment in the corridor and that the 19 station stops will be sweet spots for development. Rapid Central Station will serve as one of the station locations and another station location has been recommended — on Jefferson Avenue on Saint Mary’s Health Care property.

Through the auspices of Grand Valley Metro Council, The Rapids will hold a series of charrettes with the three cities to talk about some of the other potential station locations, noted Peter Varga, CEO of The Rapid transit system. Varga said Thursday he expects the BRT will provide about a 400 percent return on investment at station sites.

The total cost of the BRT line is estimated at slightly more than $40 million, of which the state would need to provide a total capital match of 20 percent, or $8.02 million over a four-year period. Varga said legislators juggled items in the budget around a bit and have now assured a match by the state.

Other cities, like Portland, have built or are building downtown streetcar systems — what Hales refers to as “pedestrian accelerators” and “moving sidewalks.” Grand Rapids is one of the cities considering a streetcar system downtown.

A streetcar system is a local “concentrator,” in terms of bringing people together, it’s a tourist amenity, it’s a transit connector and, perhaps most importantly, it’s a huge catalyst for development, Hales said. Portland, for instance, opened an initial 2.4-mile streetcar line in 2001 for a cost of $56.9 million. Three extensions have since added 1.6 miles to the system. By 2005 more than $2.39 billion in private investment had occurred within a two-block radius of the streetcar route, with construction of 7,248 new housing units and 4.6 million square feet of office, institutional, retail and hotel space. Portland’s return on investment was 1,900 percent, which computes to a 40-to-1 return on investment.

According to Hales a streetcar system breeds greater intensity in an area, sharply increases property values and expands the customer base and customer access to businesses along the route.

“Streetcar creates the kind of environment people want,” Hales commented, adding that a streetcar system makes a city more competitive in its ability to attract knowledge workers and makes it more livable by reducing the city’s carbon footprint.

What does it take to make a streetcar system a reality? Hales said it takes the participation of public partners, including the city, universities and hospitals in the area, as well as the participation of private partners who are willing to invest in it.

The local Public Transportation Tomorrow Taskforce has already selected a 1.6-mile streetcar alignment along Monroe and Market avenues from the Sixth Street Bridge on Newberry Street to Rapid Central Station. The estimated cost for the first segment of a streetcar system, in 2008 dollars, is anywhere from $64 million to $80 million, which includes tracks, purchase of streetcars and any utility issues that might be involved.

Construction of the first segment would be funded under a public/private process. Varga, said he’s not seeking federal funds for the streetcar project because under the federal New Starts program The Rapid cannot compete effectively against city’s that are vying for those funds to build streetcar systems that go long distances. The task force is looking into funding options, he said.

The route selected would provide multiple options for future extensions, Varga said, and the task force is already envisioning the next possible alignment. Future extensions, however, would not include Michigan Street hill because the grade on that stretch of Michigan is too steep, he noted.

Varga said he’d like to see the opening of a streetcar system coincide with the opening of the BRT four years from now.

—Anne Bond Emrich

Thursday, October 16, 2008

Inter-governmental cooperation necessary for survival

With Michigan's state and local governments strapped for cash and costs increasing dramatically, that old bugaboo of inter-government cooperation and consolidation of some services surfaced at the afternoon panel presentation today at the University of Michigan & Urban Land Institute Real Estate Forum.

The topic was “Regionalism – The Future of Michigan.” The panel was a mix of mayors and professional administrators: Daryl Delabbio, Kent County administrator and controller; Kurt Kimball, city manager of Grand Rapids; Al McGeehan, mayor of Holland; and Steve Warmington, mayor of Muskegon; with moderator Don Stypula of the Grand Valley Metropolitan Council.

A mix of public and private funding is the answer in some situations, they said (Van Andel Arena, DeVos Place, Millenium Park, the renovation of downtown Muskegon), but they also had plenty of thoughts to share about cooperation between the counties, cities, townships and school districts.

“We have evolved” although there is still some parochialism in Kent County, said Delabbio.

With Michigan being a strong home rule state, that is “probably our biggest obstacle.”

Kimball mentioned the possibility of a merger of sorts between Grand Rapids and Kent County. Though he wasn't sure how or if it would work, he said, “we need to build on our record of collaboration and take it to the next level,” said Kimball.

“Michigan is too cautious,” said Kimball, and isn't doing enough to follow up on the challenge from Gov. Jennifer Granholm in her State of the State address a year and a half ago. She said the state had revenue to share with communities that would cooperate with each other and share services to keep costs down.

Delabbio agreed there is a track record of good communication in West Michigan, that encourages cooperation. Even though there are some key issues he and Kimball do not agree on, that does not prevent them from talking to each other, he said.

But it should be the professional government administrators sitting down together to draft the agreements — not the politicians, said Delabbio.

Delabbio also took a poke at the news media, which he said would rather focus on failed collaboration attempts than the “hundreds” of inter-government collaborations in this region that work.

McGeehan agreed, saying the media is more interested in “border wars.”
If Michigan is going to succeed and prosper, “it will occur in our cities and the communities around them,” said McGeehan.

There are still grass roots challenges to cooperation. Between the school systems, a stalemate often boils down to the issue of the high school football teams.

The panel agred that public and private joint ventures are a great strength of West Michigan.

Warmington pointed out that joint public/private ventures have pumped $175 million into downtown Muskegon, which has undergone a radical change in appearance since the failure of the downtown mall in 2002 to the new construction under way there today.

—Pete Daly

Award winners identify emerging trends

The University of Michigan Land Use Institute Real Estate Forum Excellent Award winners were asked to identify what they thought would be emerging trends in their field. Here are highlights of those responses.

Robert Pliska of Sperry Van Ness: Having good relationships with mortgage bankers. “It’s always been that way, but more so now with the way the economy is,” he said.

Aaron Young of The Wisinski Group: Property owners have to be very sensitive to their tenants, as they will be asking for more concessions. Right now, owners aren’t looking three steps ahead and they should be because their loan-to-value ration could drop. “Equity leases were big a few years ago, and these might come back,” he said. Young also said there is additional pressure on brokerage companies because leases are stronger than sales.

Marcel Burgler of Prime Development: Urban universities will be a catalyst for development. “If you look at the sectors that are growing it’s health care, education and, unfortunately, government,” he said.

Colin Kraay of Grubb & Ellis/Paramount Commerce: Doing a thorough due diligence. “We had to use incredibly in-depth market knowledge to get (the deal done. Due Diligence is going to become more important for brokers as we move forward. From a broker’s standpoint, it’s a return to due diligence and market research,” he said.

Jon Rooks of Parkland Properties: Cooperation with state and local governments will become more important. “There are a lot of tools in the tool box. The state of Michigan is excellent with incentives. Our city government is also excellent,” he said. He also said there would be less new construction, but more renovations of existing buildings. He felt the conversion of apartments into condos was over, but downtowns will thrive because people want to live in those districts and they are willing to downsize their lifestyles to do that.

Randall Allman of CB Richard Ellis: More seller financing and more leasing activities. “We have to be creative and put the two opportunities together to get to the end,” he said.

Duke Suwyn of Grubb & Ellis/Paramount Commerce: Low-skilled, high-paying jobs are gone and so are the large manufacturing plants. Public-private partnerships are vital. Brokers have to be cooperative and do what is best for a community. “We have to get things down to size to meet the market,” he said of large industrial plants.

—David Czurak

Developing a successful city

Grand Action Committee co-chairman David Frey listed six elements that he felt are necessary to develop a successful city at the University of Michigan & Urban Land Institute Real Estate Forum, and here are the six in the order he gave:
  1. A cultural package: Frey said Grand Rapids was strong in this area with DeVos Performance Hall, the new Grand Rapids Art Museum, the Urban Institute for Contemporary Arts, the Gerald R. Ford Presidential Museum and the Van Andel Public Museum Center. He also noted that the city’s arts organizations are nationally known.
  2. Great health care: Here, again, he said the city is doing well with Spectrum Health, Metro Health, Saint Mary’s Health Care, the Van Andel Research and Education Institute and the Michigan State University College of Human Medicine. While Frey noted that having aspiring medical students in the city was a very good thing, he thought VAI provided the best opportunity for the city’s medical future. “The real untold story is the commercialization of the research being done at the Van Andel Institute,” he said.
  3. Good education: Frey said the city was doing very well in this area with five universities and colleges located downtown.
  4. Good entertainment: Also good. Frey said the city offers baseball, arena football, hockey, Millennium Park, an expanding John Ball Zoo and the Meijer Gardens and Sculpture Park, which he said , by the way, was paid for with only private dollars, a $155 million worth. “It is the second-largest tourist attraction in the state of Michigan,” he said of the Frederick Meijer family development.
  5. Good places to gather: Frey said people need places to socialize, other than in establishments that serve alcohol, but the city is lacking in this area. “We are in the process of creating those, all in the private sector,” he said.
  6. Urban dwelling units: Frey said downtown needs to become easier to walk in order to draw more people to live in the district. “We are sort of pedestrian friendly, but we’re more car friendly,” he said.
“We are, perhaps, in the process of creating a new economic paradigm in this city. In some sense, I think this city and the region represents the future of this state,” Frey said as he closed his presentation. “We need venture capital. We are determined to define our future and we will not be determined by the state.”

—David Czurak

Lenders seek developer’s ‘commitment’ to project

The loan spigot is still open at several financial institutions, but other financial outlets simply don’t have the ability to lend right now, according to Holly Jacoby, a client manager of commercial real estate banking at Bank of America. Even where loans are available, lenders are being more cautious these days.

Jacoby said she doesn’t know of any banks that are providing loans for any type of residential development projects or that are acquiring existing residential projects, including condominiums, single-family homes and second homes.

As for commercial real estate projects, banks are looking ever more carefully at a developer’s commitment to a project, Jacoby said.

“In addition to your cash, banks are looking at your commitment as developers to the project. We look at that in a couple of different ways. One way is the guarantee, which I think you’ll find is increasingly unlimited rather than pro rata or some of the other loosened up guarantees that we saw in 2005 through 2007.”

Secondly lenders should be prepared to ask a developer whether he was around during the last recession and if he was, how did he handle it? Did he ever get property back? Did he ever default on a property? How did he work his way out of his problem?

“We’re looking more carefully at the history of behavior in case it might repeat in the next three years,” Jacoby said. “I think you’ll find that lenders are more careful than ever about that sponsorship question. Is the developer prepared to be personally committed to the project?”

Furthermore, for the next few years developers will probably see more three-year term loan deals than the five-year deals, Jacoby said.

Michigan developers need to understand, too, that many believe Michigan is in a one-state recession: Many lenders — even if they would lend in 49 states — would not lend in Michigan, she said.

“We have been written off the map. It’s like they sawed off the mitten and it’s gone,” Jacoby remarked. “Even when the economy returns, lending will not look like it did in the past 36 months.”

—Anne Bond Emrich

Salvation Army project proceeds

The Salvation Army is $700,000 away from breaking ground for the Ray & Joan Kroc Corps Community Center near South Division Avenue and Alger Street SE in Grand Rapids, attendees at the University of Michigan-Urban Land Institute Real Estate Forum learned today.

The nonprofit organization’s Major Roger. R. Ross, Kroc Center administrator, provided an update on the project during the roundtable portion of the conference, being held in Grand Rapids for the first time ever. Efforts are underway to establish a ULI satellite in West Michigan. The real estate organization sponsors the conference annually along with U-M Taubman School of Architecture and Urban Planning. Next year’s conference will be in Ann Arbor.

Ross said the Salvation Army hopes to break ground on the $20 million center on Oct. 29. It has raised $11.8 million of its $15 million from 100 donors in a quiet campaign, but needs $12.5 million before construction can begin. “We have a little bit more to raise before we can put a shovel in the ground,” Ross said.

After the center was rebuffed from Garfield Park, the Salvation Army, the city of Grand Rapids and Grand Rapids Public Schools worked together to cobble together the 20-acre site near New Branches School, a charter school, and GRPS’ Brookside Elementary. The deal included the purchase of five private lots from four owners, Ross said.

Planned is a 94,000-square-foot building at 2500 S. Division Ave., plus an outdoor recreational area.

Among the features: indoor and outdoor performing arts and worship areas; a conference center available for meetings, receptions and other functions; a gymnasium; and indoor water park featuring a 28-foot slide, a lap pool, a lazy river, a 22-person hot tub and zero-entry pool; an outdoor splash pad; child care; an area for painting, ceramics and art programs; a fitness center; a softball diamond; two soccer fields; sand volleyball court; playgrounds; an outdoor basketball court that will be flooded in the winter for ice skating; a sledding hill that will be covered with rubber and turned into a giant “slip n side” in the summer; a community garden; and ropes course.

Ross said the center is expected to open in 2010. “We’re providing this to a neighborhood that has absolutely nothing,” he added, noting that 11,000 children ages 18 and under live within one mile.

He said memberships would be sold, and $250,000 per year will cover scholarships. Ross said no price has been set for memberships.

The late Joan Kroc, widow of the founder of McDonald’s, bequeathed $1.5 billion to the Salvation Army to build centers across the country, after overseeing the first one in San Diego. The funding comes with some strings attached, such as the need to raise local matching funds, putting half the money into an endowment to fund programs and the requirement that no child be turned away, but everyone must pay at least something to use the facility, Ross said.

The Grand Rapids Kroc Center has $21.5 million from the Kroc estate. Of the $15 million fund-raising goal, $11.5 million is planned to support the endowment and the remainder for construction. The total endowment will be $31.5 million, Ross said.

He said the center, with 70 staff member expected, plans to work with Grand Rapids Public Schools and other nearby school to provide physical education programs during the school day as well as after-school programs.

Ross said Erhardt Construction is construction manager on the building, which is being planned for silver level certification under the Leadership in Energy and Environmental Design program. Architect is IBMA; landscape architect is Jim Morgan; and Bob Israels is handling interior design.

—Elizabeth Slowik

Ballpark idea floated for downtown

The Grand Rapids Business Journal is reporting Rockford Companies CEO John Wheeler has revealed a proposal to build a ballpark downtown which could house the West Michigan Whitecaps. Wheeler discussed the proposal at a morning session of the University of Michigan Urban Land Institute Real Estate Forum being held at the Amway Grand Plaza Hotel. For more on this story, go to