Grand Rapids set to approve $103M ‘transformational’ tax incentive plan for major development

By Kate Carlson

Originally Published in Crain’s Grand Rapids Business

October 10, 2023

The Grand Rapids City Commission is poised to approve a $103 million tax incentives plan that would be the first of its kind in the city, as well as an agreement to lock in affordable housing for 20 years at the massive Factory Yards project.

The city commission’s Committee of the Whole this morning unanimously approved Grand Rapids’ first ever Transformational Brownfield Plan for the $147 million Factory Yards project that will encompass 15.5 acres on the city’s southwest side. The city commission later in the day typically approves projects sent by the committee of the whole.

Metro Detroit-based developers Ben Smith, Scott Magaluk and Dennis Griffin requested $103 million in reimbursements through the state Transformational Brownfield Program tool, which lawmakers expanded this year to apply to more projects. The funding amount was recommended by the Michigan Economic Development Corp., which will also consider the Factory Yards incentives at an upcoming Michigan Strategic Fund board meeting.

“This is obviously the first Transformational Brownfield Plan for Grand Rapids,” Jono Klooster, Grand Rapids’ interim economic development director, said during today’s committee meeting. “It has been a long process to get to this point, with a lot of cooperation from a lot of internal staff, external stakeholders and the developer, and we’re happy to be here requesting final approval of this project this morning.”

The massive project at and around 655 Godfrey Ave. SW would redevelop three buildings at varying heights as well as a boiler room on the site. A two-story building would be demolished while two new commercial buildings and a new residential apartment building would be added.

The plan calls for 467 apartment units, 31,000 square feet of ground floor commercial space, a 22,000-square-foot food hall, and 30,000 square feet of commercial office space. Nearly 30,000 square feet of fitness and recreation facilities would be onsite, as well as a 50,000-square-foot self-storage facility, a half-acre courtyard and 825 parking spaces.

As well, the committee of the whole approved a long-term affordable housing agreement and a 12-year Obsolete Property Rehabilitation Act district tied to the project.

Preliminary plans for Factory Yards did not include below-market-rate apartment units, said City Commissioner Milinda Ysasi, who noted that the Godfrey Avenue corridor is ripe for redevelopment.

The affordable housing agreement calls for 10% of each apartment unit type in the project to be rented out to households earning at or below 80% of the area median income. Another 10% of all the apartments would be rented to households earning at or below 60% of the area median income. This means 20% — or about 94 of the 467 units — would include below-market rents. The housing agreement requires the affordability rates to be locked in for 20 years.

“There is a need to preserve affordability after a certain amount of time,” said City Commissioner Kelsey Perdue. “I hope to see this body have conversations in that area so we’re not moving around affordability from project to project, but continuing to support (affordability) long-term.”

Only three Transformational Brownfield Plans for projects in Detroit and Vicksburg have been approved in Michigan since the incentive tool was created in 2017. The powerful incentive tool lets developers apply to keep income and withholding taxes from people who work and live at certain sites associated with their project, along with sales taxes on construction materials and income taxes from construction crews on projects.

Without a component of below-market-rate housing, a Transformational Brownfield Plan is able to capture 50% of the income and withholding income tax increment revenues from a project. Because Factory Yards has a binding agreement detailing a below-market rate housing plan, up to 100% of those revenues can be captured.

Grand Rapids-based Wolverine Building Group is the general contractor on the project, and Norton Shores-based Concept Design Studio serves as the architect.