KALAMAZOO — It may have taken five years, but the partners behind one of the largest mixed-use projects in downtown Kalamazoo finally have secured the financing they need for the development.
In December, Exchange Building LLC received state approvals and incentives for its proposed $52.7 million Exchange Building development at 155 W. Michigan Ave. in Kalamazoo. The project is a partnership of Kalamazoo development firms PlazaCorp Realty Advisors Inc. and Phoenix Properties LLC.
“(The incentives were) the last major financial piece we needed to move forward,” Gregory Taylor, principal at Phoenix Properties, said of the $6.4 million Michigan Community Revitalization Program (CRP) loan.
With a groundbreaking planned in the first quarter of 2017 and an expected 20-month construction period, the proposed 15-story development will combine 133 market-rate residential units with office and commercial space as well as integrated parking.
“Demand has always been high for housing in downtown Kalamazoo,” Taylor said. “The difficulty is the equation of cost versus rental (rates). We’ve had to be patient and very creative about how we secured incentives because the costs haven’t gone down and rents haven’t appreciated. We couldn’t assemble the adjacent land so we decided to go vertical. All of that has helped our numbers.”
Taylor said the developers have yet to establish rental prices for the units, but they believe the $2-per-square-foot target is the “sweet spot.” Additionally, the design calls for the apartments to start on the eighth floor of the building, meaning that they’ll be positioned as more of a premium product, he said.
The development partnership has contracted Grand Rapids-based Orion Construction Co. Inc. for general contracting services. Kalamazoo-based Byce & Associates Inc. provided architectural design for the building.
SEARCHING FOR DENSITY
The issue of adding dense housing in and around Kalamazoo’s central business district has been at the forefront of discussions in the city for several years. However, the topic became a focus for city leaders since Clinton, N.J.-based consulting firm Zimmerman/Volk Associates Inc. released a study showing that the downtown area could support about 1,400 new housing units, with approximately 400 being considered “workforce/affordable” housing.
By comparison, a similar study from 2015 by Zimmerman/Volk Associates found that downtown Grand Rapids and its near neighborhoods could support between 5,705 and 7,615 new housing units over the next five years, with a mixture of market-rate and affordable units.
While a project such as the proposed Exchange Building could move the needle for downtown Kalamazoo in getting the density highlighted in the housing study, the project’s developers and other stakeholders concede that the area still has a long way to go.
“That report is mostly accurate,” Taylor said. “The difficulty is no one has tested it in terms of scale. I think there’s a lot of demand for a variety of different price points and it’s up to the marketplace to now deliver. Our feasibility studies have been consistent with what the city’s reports have produced.”
A limited supply of downtown Kalamazoo residential units exists, but vacancy rates are slim to none, according to sources contacted for this report. For example, NoMi Developers LLC Principal Jon Durham told MiBiz that all but one unit — a two-bedroom apartment — has been rented at Walbridge Commons, a 47-unit market-rate development that opened last year in the River’s Edge district northeast of downtown.
STRIKING THE BALANCE
City leaders and economic developers working in the Kalamazoo area have prioritized securing more downtown-area housing as well, particularly as large institutional stakeholders such as Western Michigan University, Stryker Corp. and Bronson Healthcare continue to grow their presence in the city and across the region.
Ron Kitchens, president and CEO of Southwest Michigan First, a Kalamazoo-based economic development firm, told MiBiz last month that his organization hasn’t traditionally been involved in housing development. However, the organization recently has embraced housing as a necessity for attracting and retaining skilled workers.
“(W)e’re neck-deep in downtown and significant transformational projects, particularly around housing, because it’s that millennial issue,” Kitchens told MiBiz in an interview for the recent Crystal Ball edition. “If we want to become sticky to next-generation residents, then we’ve got to create housing that’s market-rate but entry-level and affordable.”
Striking that balance between newly built housing at a time of escalating construction costs while also keeping rents accessible for Kalamazoo residents likely will prove challenging, according to Taylor of Exchange Building LLC.
“In Kalamazoo, we’re below ($2 per square foot),” Taylor said. “And so we have to be optimistic but realistic at the same time. The cost of construction here is every bit as expensive as anywhere and the rents have to cover that. We believe we’ve found a way, but it’s taken adding scale.”