The Grand Rapids Downtown Development Authority authorized an agreement last week that is becoming more commonplace in the financing of construction projects.
The project is Locus Development’s renovation of the former Junior Achievement Building at 2 E. Fulton St. Grand River Bank, the project’s lender, asked the DDA to assign the financial awards the board gave the developer of the project in October 2011 to the bank.
Grand River Bank, which has previously financed Locus projects, will use the value of those awards — roughly $290,000 — as collateral for a reported $2.7 million construction loan it will make to Fulton Properties Holdings LLC, the development company Locus is using for the project.
“The assignment won’t affect the scope of the project’s work or the DDA’s support for the project,” said Eric Pratt, DDA planner.
DDA Counsel Dick Wendt, who drew up the assignment document, said in past years these requests came while construction was underway or after it was completed, but he said now more are coming before work begins. “The brownfield authority has gotten more of these requests,” he said.
In February, Third Coast Development Partners asked the Brownfield Redevelopment Authority to assign the tax-increment revenues its project at 833 Michigan St. NE will generate to Mercantile Bank, the lender, as loan collateral. The authority agreed to do that.
Wendt suggested the DDA take a look at whether it wants its awards to be used as collateral so developers can secure financing for a project. DDA board member and County Commissioner Jim Talen said he didn’t understand how the DDA grants can be considered collateral. “It’s contingent collateral — contingent on the project being completed,” said Wendt.
“Perhaps we can come back with some further thoughts on this,” said DDA Chairman Brian Harris.
The DDA awarded the following to the project: a $35,000 grant to help with filling the areaway along Division Avenue; a $65,000 building reuse grant for the façade, utility upgrades and a fire suppression system; and up to $189,000 in future tax-increment revenues for providing handicap accessibility. The clock for the latter won’t start ticking until the city’s brownfield authority ends its capture of that revenue, likely to be in 10 years.
Locus also has captured state tax credits and federal historic preservation tax credits for the project. Wendt estimated the project’s total incentives at $1.6 million.
The J.A. Building has about 22,000 square feet of space. Tower Pinkster, which is designing the renovation work, will occupy the top floor. The historic renovation has been pegged at costing $4 million. The building has sat vacant for more than a decade.
Locus Development bought the structure from Mercantile Bank in a foreclosure sale.
The board also extended the areaway and building reuse grants for another year.
“It’s essential to give the developer more time to work on the project,” said Pratt.