Alan Sylvester, left, and Greg Taylor see big opportunities in Kalamazoo, seeing some pent-up demand for residential and commercial development in downtown. PHOTO: NATHAN PECK

By Nathan Peck | TransActions
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

KALAMAZOO — Greg Taylor and Alan Sylvester pitch their plans for downtown Kalamazoo as transformative for the region.

The same could be said of their property development and management firm, Phoenix Properties. The 8-story, $24 million project they announced in June that plans to bring retail, commercial office and residential apartments to downtown Kalamazoo also signifies the first major development project principals Alan Sylvester and Greg Taylor are undertaking after buying out their other partners in the firm in late 2010. The two spoke with TransActions in an exclusive interview from their offices on Airline Drive.

“This is certainly going to be a transformational project for us. It is the first major project where we are actively playing the role of developer in this post-reorganization phase of our business. For that reason, it is an important project,” Taylor said. “It is an important project because it is here in our town, where we would prefer to do most of our work in the near term because we know the players here.”

Transitions

Phoenix Properties has built, developed, and managed residential and commercial properties around the state and the Scottsdale, Ariz. area for more than 30 years.

The duo, with more than 15 years’ experience apiece at Phoenix, acquired the 30-year-old property development and management firm outright in late fall. As part of a 5-year transition plan, Sylvester and Taylor divested of the firm’s properties in Arizona and some assets in the state to finance the purchase of the company.

“About five years ago, we started going through a (planned) transition,” Taylor told TransActions. “Two of us wanted to slow down their careers or move their investment to other parts of the country. We started liquidating some of our assets to prepare for that.”

Staying close to home

After the sale closed, Taylor and Sylvester began looking for new business opportunities in what admittedly is a difficult commercial real estate market. They currently manage 2,500 residential rental units around the state and 500,000 square feet of commercial space. Six months ago a banking client looking to move into downtown Kalamazoo tapped Phoenix Properties to search for available properties. The site at the corner of South Rose and Michigan Avenue proved to be a good fit.

The duo have longstanding ties with Gilmore Enterprises, the owner of the site, and worked to balance their needs with those of Gilmore, which owns the 9-story Comerica Building at 151 South Rose Street. The design is sensitive to Gilmore’s investment, retaining the approximately 100 parking spaces in the lot used by tenants in the Comerica Building, and preserving as much of the views from the Comerica Building as possible.

“Twelve months ago, when we were finalizing the acquisition of our company, this was not an active project then,” Taylor said. “We also took a slightly different tack. We designed our building around the needs of our building, but also around the needs of the current owner (of the property) who also owns the Comerica Building next door. Our work with the Gilmore organization has really been collaborative, to try to do something that helps them and helps us, and without eliminating the utility of an important asset to them. It is subtle, but we did some things within the design process … (to) help the Comerica Building maintain its place in the marketplace.”

Pent-up demand

The duo looked to developments around the region to determine the right mix of residential, office and retail space. The decision to move forward with rental residential properties rather than condominium development is due to slow demand for condos in markets such as Grand Rapids. A user has committed to half of the 48,000 square feet of office space and there has been interest from other large users who want to gain efficiencies by moving their operations to a large, open floor plan.

“We’ve been pleasantly surprised that we’ve had some inquiries from potential clients for much more than the space we’re building,” Taylor said. “We won’t sign a lease with every one of those prospects, but our suspicions have been confirmed that there has been a little bit of pent-up demand for a site like this.”

While commercial development still remains slow, there are pockets of demand that are starting to pick up, explained Sylvester.

“We’re seeing several firms who are likely tenants in this building who are expanding in Kalamazoo or considering locating to downtown Kalamazoo. Expansion is part of that,” he said. “On the multi-family tenant side, we see strong growth dynamics for that market.”

Lending challenges

The scale of the project limits the number of banks who can finance the project. Just three banks have expressed interest in financing the project as they have the size to support loans of that size. The developers won’t discuss the financing of the project yet.

“Kalamazoo is well served by smaller banks that can do projects in the one, two and three million dollar range, (but) because of the size of this project, being north of $20 million, it limits the number of potential lenders,” Taylor said. “Fortunately, there are two or three lenders that are working in this marketplace still that we’ve spoken to that are eager to work with us because of the softness in the market. The cap rate environment is very preferential right now, interest rates are very low, construction projects are few and far between, so we get excellent pricing from our contractors.”

These all combine to keep up-front costs down and provide upside as commercial real estate improves.

“These things will benefit us as things improve because our project will already be out of the ground. It will not necessarily be easy, because there are so few in that lender group and our choices are limited… but we’re optimistic.”